Fund compliance from abroad

Ryan Burns, head of client services for Northern Trust Global Fund Services, talks about compliance challenges impacting non-US mutual funds.
The regulatory environment in the United States has been evolving rapidly. Swing pricing, clean shares and the SEC’s Reporting Modernisation rules are among the many changes impacting mutual funds. Staying abreast of relevant changes can be challenging even for professionals who focus on compliance full-time, particularly if the United States is not your home market.

But US regulatory changes do not affect only American money managers or investors. The largest economy in the world impacts companies around the world that are looking for investors or investments, and US-registered firms manage less than half of the $40.4 trillion in global fund assets .

One way that non-US managers are looking to ensure regulatory compliance is by setting up mutual fund vehicles through a series trust. All mutual funds are required to register with the government. A series trust – sometimes called an umbrella trust – is a regulated investment company registered with the SEC which offers a way for multiple unaffiliated registered investment advisers to manage separate portfolios or series within the same trust.

Here are three areas of focus a series trust can help address:

Fee pressure – No matter where they are based, fund managers are faced with the reality of falling investment fees. Competition with exchange-traded and index funds has compressed revenue margins. The research and implementation associated with new regulations can be especially problematic inside such a tight cost environment. Outsourcing operations to a series trust can make costs more predictable, mitigating the financial impact.

Risk – The United States has leveled billions of dollars in fines against financial institutions since the 2008 financial crisis. A large penalty has the ability to damage an investment reputation built through years of good results, not to mention the financial impact on a firm. Compliance and enforcement rules are complex, and many responsibilities remain with the fund manager in a series trust structure. However, a series trust provider that has experience with regulatory change and expertise in the operations required to support compliance can help significantly.

Multiple jurisdictions – More fund operations are truly global. Companies are competing for dollars across countries. Individual investment managers draw investors from all over the globe – requiring them to deal with dozens of regulatory regimes. Working with an administrator relieves this pressure and allows firms to focus on attracting investments, managing risk and executing on their business strategy.

Perhaps no set of jurisdictions is more interested in US opportunities than those in the European Union. Many large, developed countries in the region face continued political uncertainty and questions about the shape of fiscal union after Brexit. Turning to the United States as an added distribution channel is a potential offset to uncertainty at home. Partnering with a service provider can permit a crucial counterbalance, allowing managers to attract new investors without unnecessary headaches.

Read Global Custodian’s 2017 Mutual Fund Administration Survey here.